Tuesday, June 12

Strategic Introspection

It has taken me a long time to write this post. I knew I wanted to write it, but I found it really hard to get motivated and put it together. Perhaps it was because I am writing about things I wish I had done better and once again admitting my flaws? I'm not overly used to doing that.

Long Term Strategic Plan
In today's lending environment, with zero money down mortgages available, it is a shame to be paying rent instead of a mortgage. I hope to be buying a home this fall, finally, and get out of the rent trap once and for all. So, without further ado, here is the plan, written from the point of view of a parent. Of course, you can certainly take advantage of this strategy for yourself instead.

Happy Birthday
Okay, you've just had a child. Now is the time to start putting away a very small amount of money on a regular basis. This money can be used for education, marriage or other big expected events that you are likely to want to provide for. While this is of course a "no brainer" it is amazing how few people can follow through on doing something like this.

High School
When your child turns 16,17 or 18 and wants his or her first car, have them get a loan from the bank to do so. You can certainly co-sign the loan, but it is important to get a serious credit record established for upcoming financial events. In particular, you'll want to help make sure your child is able to buy a home once they have been working full time for a little while.

College
When your child goes to college for four years you may want to consider purchasing a house. This is especially true if you are going to be on the hook for rent payments as they might end up being half of a mortgage payment anyway. If your child does pay rent, you can look at that as a percentage mortgage payment, and then after your child finishes university you can sell the house and split any proceeds. Keep in mind that other housemates will also be paying rent and it may be possible to cover your ownership costs or turn a small profit. Just make sure you leave enough time to purchase, fix it up, find out where to advertise, and get the place occupied before the first year gets started.

The Job
Either after high school or after college, depending on your child's choices, your child will enter the work force and be fully employed. After a year at a job, so they know if they want to stay there for a while, they should buy a home. It can be something cheaper, like a semi-detached, townhouse or condo, but they should buy something within their price range. If they stay at their job for five or so years, or switch jobs in the same city, they will be accumulating equity. This will let them upgrade to a bigger and better home when they are ready to start a family.

Plan Recap
Both you and your child, with your help, should focus on having a little bit of capital available for big events, to avoid debt, while at the same time focusing on establishing an advantageous credit rating. Then, as soon as practical, your child should be encouraged or guided into accumulating equity in appropriate real estate. If you follow this strategy your child will have a very easy path to comfort as long as they eventually establish themselves in any type of reliable career path.

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